The US Treasury’s Backdoor Stimulus Is Hampering the Fed
The US Treasury’s debt-issuance polices have become a powerful form of policy easing. By shortening its issuance profile to reduce long-term interest rates, the Treasury has delivered economic stimulus equivalent to a one-point cut to the Fed’s policy rate, impeding the central bank’s efforts to control inflation.
NEW YORK – The US Federal Reserve has moved mountains to control inflation, which in July fell below 3% for the first time since 2021. Unfortunately, the Fed finds itself working at cross purposes with the US Treasury, whose debt-issuance strategy has been providing backdoor interest-rate cuts, keeping inflation above the Fed’s target range.